Mandarin Villa, Inc. v. Court of Appeals

G.R. No. 119850 (June 20, 1996)

Mandarin Villa, Inc. was liable for rejecting a valid payment, causing Clodualdo de Jesus embarrassment.

Facts:

On the evening of October 19, 1989, Clodualdo de Jesus, a lawyer and businessman, hosted a dinner at Mandarin Villa Seafoods Village, a restaurant owned by the petitioner, Mandarin Villa, Inc. After the meal, de Jesus was presented with a bill amounting to P2,658.50. He attempted to pay using his credit card issued by Philippine Commercial Credit Card Inc. (BANKARD). The waiter accepted the card and went to the cashier for verification. However, after about ten minutes, the waiter returned and informed de Jesus that his credit card had expired. De Jesus contested this, asserting that the card was valid until September 1990, as indicated on the card itself.

Despite his protests, the cashier confirmed the card's expiration status. In response to the situation, de Jesus and his guests returned to their table, where a guest made a remark implying that they might have to wash dishes due to the payment issue. De Jesus then retrieved another credit card from his car, which was accepted by the cashier after verification.

Following this incident, de Jesus filed a lawsuit against Mandarin Villa and BANKARD for damages. The trial court ruled in favor of de Jesus, awarding him moral damages, exemplary damages, and attorney's fees. Both Mandarin Villa and BANKARD appealed the decision to the Court of Appeals.

The Court of Appeals modified the trial court's decision, holding Mandarin Villa solely responsible for the damages and reducing the amounts awarded to de Jesus. Mandarin Villa then filed a petition for review, raising several issues regarding its liability and the alleged negligence in handling the credit card transaction.

Legal Issues:

  1. Is the petitioner bound to accept payment by means of credit card?
  2. Was the petitioner negligent in refusing to accept the credit card?
  3. If the petitioner was negligent, was such negligence the proximate cause of the damages suffered by the private respondent?

Arguments:

Petitioner’s Arguments:

  • Mandarin Villa contended that it was not legally obligated to accept the credit card as it was not considered legal tender. The refusal to accept the card was based on the verification machine indicating that the card had expired.
  • The petitioner argued that the credit card transaction was a proposal to novate the existing obligation, which required its consent to be binding.
  • Mandarin Villa claimed that it acted in good faith by verifying the card's validity and followed the guidelines provided by BANKARD.

Respondent’s Arguments:

  • De Jesus argued that the credit card was valid and had not expired at the time of the transaction, as evidenced by the expiration date embossed on the card.
  • He asserted that the restaurant's representation that it accepted BANKARD credit cards created an obligation to honor the card.
  • De Jesus maintained that the embarrassment and humiliation he suffered were directly caused by the wrongful dishonor of his valid credit card, not by any remarks made by his guests.

Court’s Decision and Legal Reasoning:

The Supreme Court dismissed the petition filed by Mandarin Villa, affirming the Court of Appeals' decision. The Court held that:

  1. Obligation to Accept Credit Card: The agreement between Mandarin Villa and BANKARD required the restaurant to honor valid credit cards. The stipulation in the agreement conferred a benefit upon de Jesus, allowing him to demand its fulfillment. The restaurant's display of a sign indicating acceptance of BANKARD cards further reinforced this obligation.

  2. Negligence: The Court found that Mandarin Villa was negligent in its handling of the credit card transaction. The verification machine's indication of "CARD EXPIRED" did not absolve the restaurant from checking the actual expiration date on the card. The Court emphasized that a reasonable person would have checked the card's expiration date before dishonoring it, which Mandarin Villa failed to do.

  3. Proximate Cause of Damages: The Court rejected the argument that de Jesus's lack of cash was a proximate cause of his damages. It noted that the common practice among establishments, including Mandarin Villa, was to accept credit cards, and the dishonor of the valid credit card was the primary cause of de Jesus's embarrassment.

Significant Legal Principles Established:

  • The obligation of a merchant to honor credit cards as per agreements with credit card companies can create enforceable rights for cardholders.
  • Negligence in commercial transactions can arise from a failure to exercise reasonable care, particularly in verifying the validity of payment methods.
  • The principle of estoppel may prevent a party from denying obligations that arise from representations made to another party.